‘David Cameron says he's empowered the Bank of England to stop a bubble being created in London. This is like saying you've empowered the Bank's governor, Mark Carney, to stop it raining.' Illustration: Matt Kenyon

I'll tell you what's wrong with the conversation about housing – we all know there's a market failure. Any market of essential goods that most people can't afford is a failure. But, in still talking about it entirely as individuals who are unable to buy what they want, we contain ourselves within a relatively small consumer space. We fight the logic of the market with the logic of … consumers who can't afford the market. But what we're really looking at is a crisis of civic space as much as a crisis of personal space.

The library I learned to read in, and where I had my first Saturday job, has been turned into a prep school. For stupid, sentimental reasons, this saddens me far more than if it had turned into flats. Spaces aren't being distributed away from all children towards rich adults, they're being taken away from all children and given to rich children. The same local authority, along with many others, is talking about selling its town hall. It's entirely reasonable.

Think how many flats you could get into one of those buildings, and how majestic their windows would be. It would solve a lot of financial crises (at least for a fortnight) in one knock, if those employees could just work from home. The entailments for local democracy would be seismic and irreversible, but it would be hard to put an actual cash value on them. The cash value of the land, meanwhile, is very easily established – and it's massive.

Local government has seemed so boring for so long that I thought that nothing they could do would be as bad as having to listen to them deciding whether to do it. I've shaken that off now. They could do some terrible things and it wouldn't even be their fault.

Naturally, this comes back to a property bubble, and the buck ends with a London property bubble. It may not seem important if you're outside London but it is, for two reasons. First, "London", in terms of land values, will soon translate as "anywhere that is commutable to London". Second, the next general election wouldn't be the first that politicians have fought entirely on the economics of the capital city, and it won't be the last.

The sheer, dysfunctional exclusivity of the London housing market is obvious to everyone: the fact that the coalition, with its Help to Buy scheme, is answering a crisis of affordability by shovelling more money at the richest people they can find merely reflects the intensity of their conservatism. It does not suggest that they're not aware there's a problem. Everybody knows there's a problem.

David Cameron denies this will create a bubble, saying that he's empowered the Bank of England to stop a bubble being created. This is a little bit like saying you've empowered the Bank's governor, Mark Carney, to stop it raining. If the debt needed to buy a house is far more than most earn, the ratio of household debt to GDP will be very high, and banks will be over-leveraged. These are the preconditions for a housing bubble. This isn't the view of Marxist economists, it's the view of as mainstream a figure as this year's Nobel prizewinner in economics, Robert Shiller.

But there is a reason why Cameron is so unruffled by the idea of a bubble, even if it's not his given reason: there is a perception – which is not, in the short-term, unfounded – that the bubble in the south-east cannot burst. The reason is foreign investment, which runs all the way from the premium properties (75% of central London newbuilds are sold abroad before they even appear on the UK market), to typically undervalued areas, like Brixton in south London, where an estate agent told me recently: "It's actually not so much young professionals, it's foreign investment, buy-to-lets."

Since people still need to live in the capital, those still almost able to buy are shunted further out, and even quite distant towns take on the glister of London prices. None of this means the bubble won't burst eventually, but it does mean it will take longer than the 18 months we have to go until the election, and that when it does, the bust probably won't function in the classic way.

The house price crash of the early 1990s meant the genuine degradation of capital. Mortgage companies had fire sales and houses were auctioned, sometimes for less than they were worth. The spectacle was appalling, as well-intentioned people who'd thought they were being responsible and far-sighted were suddenly homeless.

And yet the result was that, by the mid-90s, property was affordable again. Set this against the 2007/8 sub-prime housing crash, which impacted on London prices for about five minutes.

Governments now believe that London can no longer go bust. This is probably untrue; anywhere can go bust. The Herengracht Canal index is a record of house prices on Amsterdam's most prestigious waterway. Economists love it because it goes back to 1628. But it gives you that Ozymandias feeling; once upon a time, that was Park Lane. Nowhere stays Park Lane forever. But if we always insulate ourselves against a bust we will, quite quickly, price ourselves out of civic space.

So, sure, we need to build more houses. We all agree on that, apart from – bizarrely – the people in charge. But at some point we also have to articulate the point of collective ownership, and this will inevitably entail articulating where and why developers aren't welcome, which will become where and why the investment of rest of the world isn't welcome. Either that, or remake a capital elsewhere.